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Strategic behaviors and transfer of wholesale costs to retail prices in the electricity market: Evidence from Colombia

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  • Correa-Giraldo, Manuel
  • Garcia-Rendon, John J.
  • Perez, Alex

Abstract

This paper estimates the pass-through of prices from wholesale to retail using monthly data for the period January 2017–March 2020 for residential users in the Colombian electricity market, which is characterized by large hydroelectric capacity and inelastic demand. Although much of the literature has found the pass-through rate to be incomplete, results are consistent with other studies that have been conducted for electricity markets and have shown that firms have no incentive to adjust their profit margins in the face of a cost shock. These results also converge with the regulatory framework of the retail electricity market in Colombia. In particular, the results reveal that the cost pass-through is more than complete with a rate of 115%. There is also evidence of an increase in the magnitude of the cost pass-through year by year. When analyzed by type of retailer, the results suggest that the cost pass-through of two major dominant and vertically integrated retailers is statistically higher than the remaining retailers with a pass-through close to 120%, suggesting that dominant retailers integrated with power generation could exercise market power.

Suggested Citation

  • Correa-Giraldo, Manuel & Garcia-Rendon, John J. & Perez, Alex, 2021. "Strategic behaviors and transfer of wholesale costs to retail prices in the electricity market: Evidence from Colombia," Energy Economics, Elsevier, vol. 99(C).
    • Handle: RePEc:eee:eneeco:v:99:y:2021:i:c:s014098832100181x
    DOI: 10.1016/j.eneco.2021.105276
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    Cited by:

    1. Ramírez–Hassan, Andrés & López-Vera, Alejandro, 2024. "Welfare implications of a tax on electricity: A semi-parametric specification of the incomplete EASI demand system," Energy Economics, Elsevier, vol. 131(C).
    2. Alejandro Betancur-Ramos & John Grimaldo-Guerrero & John William Grimaldo-Guerrero & Juan Rivera-Alvarado & Eilin G mez-Mesino, 2022. "Users, Vehicles Electrics, and Energy Markets in Colombia," International Journal of Energy Economics and Policy, Econjournals, vol. 12(5), pages 11-17, September.
    3. Qunpeng Fan, 2022. "Management and Policy Modeling of the Market Using Artificial Intelligence," Sustainability, MDPI, vol. 14(14), pages 1-14, July.
    4. Ander Iraizoz & José M Labeaga, 2022. "Incidence and Avoidance Effects of Spatial Fuel Tax Differentials: Evidence using Regional Tax Variation in Spain," Working Papers halshs-03789430, HAL.
    5. Garcia-Rendon, John & Rey Londoño, Felipe & Arango Restrepo, Luis José & Bohorquez Correa, Santiago, 2023. "Sectoral analysis of electricity consumption during the COVID-19 pandemic: Evidence for unregulated and regulated markets in Colombia," Energy, Elsevier, vol. 268(C).
    6. Alex Perez & Jaime Carabali & Luis Meneses, 2022. "Pass-through in Colombia s Unregulated Retail Electricity Market," International Journal of Energy Economics and Policy, Econjournals, vol. 12(4), pages 575-583, July.

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    More about this item

    Keywords

    Pass-through; Retail electricity market; Asymmetry price; Colombia;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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